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A company that provides group health insurance for its workers gets to write off that cost as a business expense, but individuals who buy their own health insurance also can take federal income tax deductions for those premiums. Individuals, however, don't pay business taxes so they take personal deductions, not business expenses. Almost any worker not covered under a company plan can qualify.
A self-employed individual can deduct premiums for medical, dental and long-term care insurance for himself, a spouse and any dependents. The policy can be in the name of the individual or in the name of the business, but the Schedule C, Profit and Loss From Business, must show a net profit. This deduction, however, is taken on Form 1040, individual tax return, and not as a business expense on the Schedule C.
Partners also can get deductible medical insurance, either as individuals or through the partnership. Either way, the premiums will be reported to a partner as gross income on a Schedule K-1 of a Form 1065, Partner's Share of Income, Deductions, Credits. Since partnerships do not pay business taxes, the only deduction is a personal one. A partner deducts health insurance premiums just like a sole proprietor.
S corporations also do not pay business income taxes so health insurance premiums for shareholders are treated much like those for partners. Either the shareholder or corporation can pay the premiums for personal health insurance. It the corporation pays, they are reported as income on a W-2 wage statement and deductions are taken on a personal income tax form. The policy, however, must be in the S corporation's name.
An individual employed by a company that does not provide health insurance can create a health savings account. This is similar to an individual retirement account in that contributions can reduce your personal income tax. Claim contributions as an above-the-line deduction on Form 1040, even if you do not itemize deductions. Earnings in the account are tax-exempt as are distributions used for medical expenses.
- IRS: Deducting Business Expenses
- IRS: Health Insurance Tax Breaks for the Self-Employed
- Tax Act: Self-Employed Health Insurance Deduction
- Mashable: Top 7 Tax Deductions for the Self-Employed
- Bankrate.com: Deducting Private Health Insurance
- TurboTax: Deducting Health Insurance Premiums If You're Self-Employed
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